Will the tariff price war increase cloud computing costs?

The last few weeks have been somewhat tumultuous for the global economy. Trump's tariffs (which he subsequently rolled back to baseline for most countries except China) caused stock markets to implode, with $5tn being wiped off the US stock market alone. Other countries have retaliated with their own tariffs aimed at the US, and whilst there has been a minor recovery, the damage has certainly been done. 

The tariffs are fundamentally on tangible (i.e. physical) goods, but will they have an impact on technology services?

Cloud services

Unsurprisingly, the answer to this is not a simple yes or no. Cloud computing services, such as IaaS, PaaS or any online based service, are not physical goods in the traditional sense. For example, consuming serverless technology via Azure or AWS by its nature is a virtual service that doesn't "exist" (i.e. if you went to the data centre you would not be able to denote which physical server your service existed on).

So from that perspective, cloud services are immune to the tariffs (for now at least).

Data centre costs

However, cloud computing services all have to live somewhere to function - in data centres. These require hardware such as microprocessors to run, and these products most definitely do fall foul of tariffs. The biggest producers are located in China, Japan, South Korea, Taiwan and the US.

If we look at two of the biggest infrastucture providers, Microsoft (Azure) and Amazon (AWS), these are US based companies. Because the US is one of the main producers of microprocessors it is logical to assume that they could stop importing from other countries and just use their own. However, it is not that simple. A single server in a data centre contains tens of thousands of components, and many of these are specialist pieces of technology that are only available via importation. Thus, there is no way to be truly immune from tariffs on hardware.

So how does this relate to cloud services? As with anything in capitalism it comes down to a company's bottom line - if their costs rise then they will inevitably pass this onto the consumer. If it costs Microsoft 10% more to implement their data centre, then at some point this will be passed down the funnel to the customer. It does seem a question of when not if.

Reduce costs

Although price rises seem unavoidable, there are options to cushion the blow.

Firstly, an audit of existing cloud services is a prerequisite. Do you still use everything you are paying for? Are your servers overpowered? Would newer services be cheaper? There are tools out there to help with this. For example, Azure has a decent optimisation service that will guide you to lower costs.

Secondly, check if you can lock-in. If you know you are going to need the service for years to come, then see if the provider will offer a discount. Again, Azure is helpful here in that you can sign up for reserved instances for X years with normally a hefty discount.

Summary

The world is changing and, if you believe the hype, globalisation is coming to an end (hyperbole?). Putting aside all of the rhetoric, its clear that global prices are fluctuating massively, so who knows what they will be in the coming months?

The key is to be prepared, understand what you are paying for, and get the best deal you can.